Why is e-commerce important?
With China’s digital revolution has come the explosion of e-commerce, the purchasing of products or services online. As the world’s largest online population continues to grow, the importance of e-commerce becomes more pronounced, particularly in more rural and less-developed areas, where despite lower incomes, consumers spend almost as much online as wealthier cities.
For brands interested in penetrating the lucrative Chinese market (with good reason), an online presence is a good place to start that minimizes risk. For brands who have already established physical presences, a digital presence is a way to expand into a new demographic: Chinese online shoppers. As McKinsey points out, e-commerce isn’t replacing traditional shopping, but rather “stimulating consumption that would not otherwise take place.” Here are 8 things you should know about e-commerce China:
It’s a big market: China had over 300 million in online shoppers last year
It’s a growing market: Last year, e-commerce transactions rose 30 percent to $1.64 trillion.
It’s diverse: Apparel, recreation and household products are the largest online retail segments in China.
Shoppers are price-conscious: Aside from convenience, another major factor in the popularity of online shopping is because it’s much easier to compare prices and see reviews online, particularly on social networks. In addition to helping digital shoppers become savvier shoppers, e-commerce gives brands opportunities, like Singles Day, to drive awareness (and sales!) online.
Mobile: With mobile payments becoming more widespread, it’s not surprising that there’s a trend towards greater smartphone use. While 70% of online shoppers use their home computers, mobile smartphone purchases at 60% are catching up quickly.
Alibaba is leading the way, but newer players are upping the competition: Alibaba’s Tmall commands approximately half of the Chinese business-to-consumer market. In the second quarter of 2014, Alibaba sold more than Amazon and eBay combined. Following Alibaba is JD.com. And we can’t ignore newer companies like Shangpin and Yihaodian, which are smaller, but are distinguishing themselves by focusing in on specific markets, luxury goods and food, respectively. Additionally, many large brands have their own e-commerce websites in China, but it can be a hassle to creating an efficient website as well as manage payment processing and settlement capabilities in China.
Social media plays a big role: In addition to assisting product reviews and pricing, most e-commerce sites have a close, if not directly linked relationship with the major social media platforms. Reports suggest that consumers are more likely to trust social media recommendations, with 66% relying on recommendations from friends and family in their social media network. Understanding the power of social media, several of China’s tech giants jumped on the train: after Alibaba took a large stake of Weibo, it’s not surprising Tencent and JD teamed up soon after.
Online payment systems are more widespread, but of a local flavor: Instead of using credit cards online, Chinese consumers use online payment systems equivalent to the west’s PayPal. The biggest players are, surprise surprise, connected to China’s tech giant: in first is Alipay, Alibaba’s payment system, followed by WeChat creator Tencent’s Tenpay. And with the increasing connections between e-commerce, mobile, social media, and payment, it’s hard to be involved in one without connecting to the others.
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